Supreme Court wants banks to repay digital arrest victims

The Supreme Court says RBI rules must make banks refund digital arrest victims in full when weak due diligence let the fraud happen. What changes next.

The Supreme Court has told the Reserve Bank of India (RBI) to write rules that make banks fully compensate victims of "digital arrest" scams when a bank's failure of due diligence helped the fraud along, MediaNama reported on 30 October on the court's 29 October order. The RBI must notify new KYC rules by 30 November. For anyone who banks online, the court is pointing at the bank, not the victim, as the party that should carry the loss.

What the court said on 29 October

The case is heard by a bench led by Chief Justice Surya Kant, with Justices Joymalya Bagchi and V Mohana, which took it up on its own motion in October 2025. According to MediaNama, the court said compensation should be at least equal to the amount lost, and that liability should rest with the bank itself and not only with an individual officer. The Chief Justice reportedly said banks would not change their practices without penalties.

Banks should temporarily hold transactions out of line with an account's history, automatically alert the nearest police station, and verify a transaction before releasing funds. The RBI was told to list all authorised financial institutions, notify the proposed KYC Amendment Directions, 2026, by 30 November, and report on action against bank staff involved in such cases.

Why today's rules do not cover most victims

A "digital arrest" is a scam in which a caller claims you are under investigation and tells you to move your savings to a "safe" account. The victim sends the money themselves, which is the legal catch. RBI's 2017 circular gives zero liability only for unauthorised transactions caused by a bank's fraud or negligence, so most victims who authorise the transfer under deception fall outside it.

Inc42 reported on 5 August 2026 that the same bench had told the RBI to adopt a standard operating procedure (SOP) for accounts linked to cyber fraud, and asked a committee to examine victim compensation and shared liability, noting that over Rs 54,000 crore had allegedly been lost to such scams.

The numbers behind the order

MediaNama's report puts the net economic loss this year at almost Rs 800 crore, and cites the court's November 2025 figure of over Rs 3,000 crore extorted in total. The two totals measure different things.

The Centre has proposed safeguards before December, including a one-hour delay on payments of Rs 10,000 or more and a "kill switch" to disable digital payments. In September, the RBI released a draft requiring banks to flag suspected mule-account transactions of Rs 1,000 or more, with holds of up to 60 days, from 1 April 2027 as drafted. A "mule account" is one used to pass stolen money along.

What it means for customers, banks and apps

For customers, a bank facing compensation has reason to question unusual transfers, so expect more holds and verification on large or out-of-pattern payments. For banks, liability for weak due diligence turns fraud monitoring from a cost into a direct financial risk.

Open questions remain, per MediaNama. Who decides whether due diligence failed, and must the victim prove it? Will payment apps and wallets be covered, or only banks? How will automatic police reporting fit with the data protection law? What if a genuine payment is held by mistake? The final rules may differ from the court's remarks.

What to watch next

- The RBI's notification of the KYC Amendment Directions, 2026, due by 30 November, and their start by 31 December. - The Centre's proposed one-hour delay and payment "kill switch" before December. - The finalised RBI mule-account rules, due 1 April 2027 as drafted.

Key takeaways

- The Supreme Court said on 29 October that RBI rules should require banks to compensate digital arrest victims in full where a bank's due diligence failed, according to MediaNama. - The RBI has been told to notify new KYC directions by 30 November and enforce them by 31 December. - Current RBI rules protect customers mainly against unauthorised transactions, which leaves most "authorised under deception" victims uncovered. - Details such as who proves a due diligence failure, and whether wallets and payment apps are covered, are still undecided. - This report rests on one outlet's account of the order, so the exact wording should be checked against the court's text once available.

Sources

- [MediaNama: Supreme Court says RBI rules should make banks compensate digital arrest victims](https://www.medianama.com/2026/10/223-sc-rbi-banks-compensate-digital-arrest-victims/) - [Inc42: Digital arrest scams, SC directs RBI to create bank SOPs, pushes for victim compensation framework](https://inc42.com/buzz/digital-arrest-scams-sc-directs-rbi-to-create-bank-sops-pushes-for-victim-compensation-framework/)

Tags: Digital arrest RBI Supreme Court Fraud Banking